The impact of this is expected to persist through next year, but, "fortunately, domestic spending and investment will still grow, although at a slower pace, to help sustain economic growth," Wu said.

Minister of Economic Affairs Ho Mei-yueh (何美玥) said on Wednesday that the ministry is targeting 5 percent growth next year. This is higher than the Directorate General of Budget, Accounting and Statistics' forecast of 4.36 percent, which it made last month.

Unstable cross-strait relations will remain a major hurdle to future economic development, after Beijing's recent decision to enact anti-secession legislation, according to the Academia Sinica.

"Foreign investors usually place their medium and long-term investments here based on cross-strait prospects," Wu said.

"The worse the [cross-strait] situation is, the lower that their investments will be," Wu said.

The effect of China's macro-economic control policy is another variable for Taiwan's economy, Wu said.

Should China further move to tighten its economic expansion, Taiwan's exports to the country may decrease as demand falls, but that negative impact will be offset by falling raw materials prices, he added.

Still, exporters need to be cautious on the appreciation of New Taiwan dollar, which Wu said may rise further against the US dollar next year.

The nation's exports are expected to grow 8.8 percent to NT$7.55 trillion (about US$236 billion) next year, after marking an increase of 17.49 percent this year to NT$6.94 trillion, the institute predicted.